EXHIBIT 99.3
CAUTIONARY STATEMENTS FOR PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Timberland Company (the "Company") wishes to take advantage of The
Private Securities Litigation Reform Act of 1995, which provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information. Prospective information is based on management's then current
expectations or forecasts. Such information is subject to the risk that such
expectations or forecasts, or the assumptions used in making such expectations
or forecasts, may become inaccurate. The following discussion identifies
important factors that could affect the Company's actual results and could cause
such results to differ materially from those contained in forward-looking
statements made by or on behalf of the Company. The Company undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise.
CONSUMER TRENDS, CONSUMER ACCEPTANCE OF PRODUCTS, AND RETAIL MARKET
CONDITIONS. Sales of the Company's products are subject to consumer trends,
consumer acceptance of products, and other factors affecting retail market
conditions, including the current continued softness in U.S. market conditions
and the global economic and political uncertainties resulting from the
continuing war on terrorism. For example, decreased consumer spending, a shift
towards discount retailers, softness in the retail market and weakened financial
condition of wholesale customers could adversely affect the Company's sales. The
Company believes that its more fashion-focused women's footwear product line and
men's collection apparel products are more susceptible to changing fashion
trends and consumer preferences than are the Company's other products. The
success of the Company's products and marketing strategy will also depend on a
favorable reception by the Company's wholesale customers and consumers at
retail. This reception is conditioned, in part, on the Company's ability to
build its brand, including its Timberland PRO(TM) sub-brand, into a world class
brand and on the Company's ability to respond to the demands of the marketplace
for greater speed and exceptional customer service. In addition, the Company
believes that warmer than anticipated weather conditions have, in past
fall/winter selling seasons, reduced sales as a result of decreased consumer
demand at retail for the Company's higher margin boot products. Such conditions
could adversely affect the Company's financial performance in the future,
especially if a greater proportion of the Company's revenue were to be made up
of "at once" orders.
INTERNATIONAL. The Company manufactures and sources a majority of its
products outside the United States. Timberland(R) products are sold in the U.S.
and internationally through its stores, operating divisions, wholesale
customers, distributors, commission agents, franchisees and licensees.
Accordingly, the Company is subject to the risks of doing business abroad,
including, among other risks, foreign currency exchange rate risks, import
restrictions, anti-dumping investigations, political or labor disturbances,
expropriation and acts of war. Although the Company pays for the purchase and
manufacture of its products primarily in U.S. dollars, the Company is routinely
subject to currency rate movements on non-U.S. denominated assets, liabilities
and income as the Company sells goods in local currencies through its foreign
subsidiaries. Derivative instruments, specifically forward contracts, are used
by the Company in its hedging of foreign currency transactions. While the
Company attempts to manage its foreign currency exchange rate risks, no
assurances can be given that such factors will protect the Company from future
changes in foreign currency exchange rates that may impact the financial
condition or performance of the Company. In addition, the adoption of the euro
by the European Monetary Union has not had any material business disruptions on
the Company's business. The Company will continue to monitor the euro
conversion.
The Company re-acquired exclusive distribution rights for the
Asia-Pacific region from Inchcape plc. in 2000. The Company took over the
management of the sale of Timberland products in Japan, Singapore, Malaysia and
Hong Kong through subsidiaries. The Company is pursuing arrangements with
appropriate distributors in other markets in the Asia-Pacific region. In 2002,
the Company opened a subsidiary in Korea. The Company's revenue from its
operations in this region would be adversely affected if general economic
difficulties in the region do not improve.
RAW MATERIALS. The Company depends on a few key sources for leather,
its principal raw material, and other proprietary materials used in its
products. In 2002, eight suppliers provided, in the aggregate, approximately 80%
of the Company's leather purchases. Two of these suppliers provided
approximately 40% of the Company's leather purchases in 2002.While the Company
historically has not experienced significant difficulties in obtaining leather
or other raw materials in quantities sufficient for its operations, there have
been significant changes in their prices. The Company's gross profit margins are
adversely affected to the extent that the selling prices of its products do not
increase proportionately with increases in the costs of leather and other raw
materials. Any significant unanticipated increase or decrease in the prices of
these commodities could materially affect the Company's results of operations.
As discussed by the Company in previous filings with the Securities and Exchange
Commission during 2001, leather hide prices increased significantly in 2001 and
adversely impacted the Company's gross margins in 2001. However, in 2002 leather
hide prices returned to more normalized trading levels thereby improving the
Company's gross margins compared with 2001. The Company attempts to manage this
risk, as it does with all other footwear and non-footwear materials, on an
ongoing basis by monitoring related market prices, working with its suppliers to
achieve the maximum level of stability in their costs and related pricing,
seeking alternative supply sources when necessary and passing increases in
commodity costs to its customers, to the maximum extent possible, when they
occur. No assurances can be given that such factors will protect the Company
from future changes in the prices for such raw materials.
DEPENDENCE ON SALES FORECASTS. The Company bases, in part, its
investments in infrastructure and product on sales forecasts that are
necessarily made in advance of actual sales. The Company does business in highly
competitive markets, and the Company's business is affected by a variety of
factors, including:
- - brand awareness
- - product innovations
- - retail market conditions
- - economic and other factors
- - changing consumer preferences
- - fashion trends
- - weather conditions
One of management's principal challenges is to optimize its ability to predict
these factors, in order to enable the Company to better and more rapidly match
production of its products with demand. In addition, the Company's growth over
the years has created the need to increase these investments in infrastructure
and product and to enhance the Company's operational systems. To the extent
sales forecasts are not achieved, these investments would represent a higher
percentage of revenue, and the Company would experience higher inventory levels
and associated carrying costs, all of which would adversely affect the
Company's financial performance.
DEPENDENCE UPON INDEPENDENT MANUFACTURERS. During 2002, the Company
manufactured approximately 11% of its footwear unit volume, compared to
approximately 13% during 2001 and 15% during 2000. Independent manufacturers
and licensees in Asia, Europe, Mexico and South and Central America produced
the remainder of the Company's footwear products and all of its apparel and
accessories products. Independent manufacturers in China, Vietnam, and
Thailand produced approximately 89% of the Company's 2002 footwear unit
volume; and three of these manufacturers produced approximately 14% to 21%
each of the Company's 2002 footwear volume. The Company believes that the
shift towards sourcing product from independent manufacturers will continue
to reduce manufacturing overhead and product costs, increase product quality
and increase the Company's flexibility to meet changing consumer demand for
particular product lines. However, the success of these measures depends on
the ability of the Company's independent manufacturers to provide high
quality product at lower cost and to do so with rapid turn-around times, and
while the Company believes it has chosen third party manufacturers with
sufficient financial strength, a continued economic downturn could cause the
Company's suppliers to fail to make and ship orders placed by the Company.
The Company could utilize its own factories and sourced manufacturers in
other countries in such an event to cover any resulting shortfall; however,
delivery of these products would be delayed from the original production
schedule. There can be no assurance that the Company will be able to maintain
current relationships or locate additional manufacturers that can meet the
Company's requirements.
RETAIL ORGANIZATION. In 1986, the Company opened the first
Timberland(R) store dedicated exclusively to Timberland(R) products. At the end
of 2002, the Company operated 26 specialty stores and 49 factory outlet stores
in the United States and 2 factory outlets in Puerto Rico , and 102 specialty
stores and 22 factory outlet stores in Europe and Asia. The significant increase
in stores in Asia is attributable to the Company's re-acquisition of Inchcape
plc.'s exclusive distribution rights for the Asia-Pacific region in 2000, as
discussed above in the "International" paragraph. In 2001, the Company also
began offering its products on its new online shop, timberland.com. Revenue from
retail stores operated by the Company in the U.S. and from its new e-commerce
business represented 16% of the Company's revenue for 2002.
The Company has made significant capital investments in opening these stores and
incurs significant expenditures in operating these stores. The higher level of
fixed costs related to the Company's retail organization adversely affects
profitability, particularly in the first half of the year, as the Company's
revenue historically has been more heavily weighted to the second half of the
year. The same market conditions affecting the Company's wholesale customers
described above also affect the performance of the Company's retail
organization. In 2002, the Company experienced revenue declines in its U.S.
retail stores primarily due to weakness in the U.S. retail climate. Given these
continuing economic conditions, the Company intends to control growth in its
retail organization and focus on enhancing returns in existing locations. The
Company's ability to recover the investment in and expenditures of its retail
organization, particularly its specialty stores, can be adversely affected if
sales at its retail stores are lower than anticipated. Although the Company
believes its factory outlet stores enable the Company to preserve the integrity
of the sale of excess, damaged or discontinued products, and maximize the return
associated with such sales, the Company's gross margin could be adversely
affected if off-price sales increase as a percentage of revenue.
COMPETITION. The Company markets its products in highly competitive
environments. Many of the Company's competitors are larger and have
substantially greater resources than the Company for marketing, research and
development, and other purposes. These competitors include athletic footwear
companies, branded apparel companies and private labels established by
retailers. Furthermore, efforts by the Company's footwear competitors to dispose
of their excess inventory could put downward pressure on retail prices and could
cause the Company's wholesale customers to redirect some of their purchases away
from the Company's products.
MANUFACTURING. The Company currently plans to retain its internal
manufacturing capability in order to continue benefiting from reduced lead
times, favorable duty rates and tax benefits, although changes in tax
legislation have reduced the tax benefits previously available through its
manufacturing operations in Puerto Rico. However, the Company continues to
evaluate its manufacturing facilities and independent manufacturing alternatives
in order to determine the appropriate size and scope of its manufacturing
facilities. There can be no assurance that the costs of products that continue
to be manufactured by the Company can remain competitive with sourced products.
LICENSING. Since late 1994, the Company has entered into several
licensing agreements which enable the Company to expand the Timberland(R) brand
to product categories and geographic territories in which the Company has not
had an appreciable presence. The rights granted under these agreements are
typically exclusive, and the Company may not terminate these agreements at will,
although the Company has reserved its right to terminate these agreements for
cause. The success of the Timberland brand in these products or territories
will, therefore, largely depend on the efforts and financial condition of its
licensees. In addition, although the Company is pursuing additional licensing
opportunities, there can be no assurance that the Company will be able to locate
licensees and negotiate acceptable terms with licensees for additional products
and territories.
PRICING OF PRODUCTS. The prices the Company is able to obtain for its
new and expanded product offerings, and the Company's ability to increase prices
of its other products, will depend upon consumer acceptance of such prices, as
well as competitive and other market factors.
MANAGEMENT AND CONTROL. Sidney W. Swartz, the Company's Chairman, and
various trusts established for the benefit of his family or for charitable
purposes, hold approximately 79% of the combined voting power of the Company's
capital stock in the aggregate, enabling him to control the Company's affairs
and to influence the election of the three directors entitled to be elected by
the holders of Class A Common Stock voting separately as a class. Jeffrey B.
Swartz, the Company's President and Chief Executive Officer, is the son of
Sidney Swartz. The loss or retirement of these or other key executives could
adversely affect the Company.
LIQUIDITY AND CAPITAL RESOURCES. Management believes that the Company's
capital needs for 2003 can be met through its current cash balances, through its
existing credit facilities and through cash flow from operations, without the
need for additional long-term financing. The existing credit facilities expire
in May, 2004. The Company may also need to raise additional capital in the
future in order to finance its anticipated growth and capital requirements
beyond 2003. The terms and availability of any such additional or replacement
financing will be subject to prevailing market conditions and other factors at
that time. In addition, the Company's revolving credit facility places
limitations on the payment of cash dividends and contain other financial and
operational covenants with which the Company must comply. If the Company does
not comply with such covenants, the Company's ability to use such credit
facilities or to obtain other financing could be adversely affected.
INTELLECTUAL PROPERTY. The Company has spent, and may be required in
the future to spend, significant amounts to protect and defend its trade name,
trademarks, patents, designs and other proprietary rights. The Company is also
susceptible to injury from parallel trade and counterfeiting of its products.
LITIGATION. The Company is involved in various litigation and legal
matters that have arisen and will arise in the ordinary course of business. The
costs of prosecuting or defending these matters or an unfavorable outcome in
these matters could adversely affect the Company's operating results.
ACCOUNTING STANDARDS. Changes in the accounting standards promulgated
by the Financial Accounting Standards Board or other authoritative bodies could
have an adverse affect on the Company's future reported operating results.
ENVIRONMENTAL AND OTHER REGULATION. The Company is subject to various
environmental and other laws and regulations, which may change periodically.
Compliance with such laws or changes therein could have a negative impact on the
Company's future reported operating results.